Euro falls to 22-month low as German business confidence slides

May 24 (Bloomberg) -- The euro traded close to the weakest level since July 2010 versus the dollar as German business confidence slid and manufacturing shrank, stoking concern fallout from the debt crisis is spreading.

Europe’s 17-nation currency dropped for a third day versus the yen as European leaders clashed over joint bond sales at a summit and offered no immediate relief for recession-wracked Spain. The Dollar Index advanced as speculation the turmoil is deepening increased demand for the U.S. currency.

“The euro crisis is back in full speed hitting high- yielding assets and the sentiment against the euro,” said Bernd Berg, a currency strategist at Credit Suisse Group AG in Zurich.

The euro depreciated as much as 0.5 percent to $1.2516, the least since July 6, 2010, before trading little changed at $1.2581 at 6:28 a.m. New York time. The European currency dropped 0.1 percent to 99.86 yen, after tumbling 1.4 percent yesterday. The dollar slipped 0.1 percent to 79.39 yen.

Merkel laid out the German position that “much stronger economic cooperation” in the region is needed before euro bonds can be issued, speaking to reporters in Brussels after the summit. European Union President Herman Van Rompuy said leaders are not under any pressure to introduce euro bonds.

“When you clear away all the chatter, this problem is about growth,” said Peter Rosenstreich, chief currency analyst at Swissquote Bank SA in Geneva. “With growth, things are manageable. Without it, it’s tough. Data out of Germany today suggested after three years, there is very little confidence in European Union leaders’ ability to find a solution.”

Greece Concern

Luxembourg Prime Minister Jean-Claude Juncker, who chairs meetings of euro-area finance ministers, said he didn’t ask the 17 members of the currency bloc to prepare contingency plans for the possibility of Greece leaving the euro. An inconclusive May 6 ballot in Greece raised speculation it will abandon austerity measures imposed on the nation after two bailouts and have to exit the euro. New elections are scheduled for June 17.

“More and more market participants are hedging their portfolio by shorting the euro,” Berg said. “Therefore we see a further built up of short euro positions versus the dollar.” A short position is a bet an asset will fall.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- rose to a record 173,869 on May 15, from net shorts of 143,984 a week earlier, data from the Washington-based Commodity Futures Trading Commission showed.